Trends—June 2011

Restaurants Change Supply Chain Menus

Rising food prices, increasing transportation costs, and consumer demand for affordable meals are forcing restaurants to squeeze costs from their supply chains. Some chains are looking to offset an estimated four-percent rise in commodity prices internally, rather than simply passing costs along to customers.

Here’s a buffet-line perspective of how some restaurants are streamlining their supply chains to become more efficient.

Popeye’s. Popeye’s Louisiana Kitchen fried chicken chain was able to trim about $16 million in costs in 2010, bringing franchisees one percentage point of improvement in restaurant operating profit margins before rent, compared with the prior year. The restaurant chain made its distribution more efficient by ensuring every truckload was full, and by negotiating more beneficial, longer-term contracts with suppliers.

DineEquity. DineEquity is working with franchisees at its Applebee’s and IHOP restaurant chains to identify cost reductions. IHOP restaurants are implementing new tools that help portion food to reduce waste, which, in turn, lowers food costs.

Brinker International. Brinker International is rolling out a “kitchen retrofit” program at its Chili’s bar and grill chain. The program optimizes food preparation labor processes, among other efficiencies. This effort is expected to reduce labor and sales costs by eliminating waste, as well as contribute to utility savings through the use of new energy-efficient equipment.

Recycling Post Consumer Waste, Post Haste

Shareholder advocacy group As You Sow will file shareholder resolutions with consumer packaged goods giants Procter & Gamble (P&G) and General Mills to adopt extended producer responsibility (EPR) programs aimed at eliminating post-consumer waste. The proposals will press the companies to collect and recycle product packaging (plastic, glass, metals, and paper) in their U.S. operations.

These new proposals follow As You Sow’s successful efforts in convincing Coca-Cola, PepsiCo, and Nestle Waters North America to take responsibility for more than 50 percent of their U.S. product packaging (see sidebar below).

The proposals ask P&G and General Mills to report to shareholders on how taking responsibility for post-consumer product packaging can reduce carbon emissions, and air and water pollution, and lead to re-evaluating the way they design, use, and re-use packaging resources and materials. The proposals also ask the companies to take the lead in emerging public policy debates underway in several states on how to manage and finance EPR policies.

“It’s time for companies to manage the full life-cycle of packaging as efficiently as they manage design and marketing of products,” says Conrad MacKerron, As You Sow’s senior director for corporate responsibility. “Taking responsibility for environmental externalities is a key step toward an industrial system of sustainable production and consumption.”

BOTTLING GREEN

How green can CPG manufacturers get? PepsiCo has developed the world’s first PET plastic bottle made entirely from plant-based, renewable resources. The new “green” design will launch in 2012 and is expected to significantly reduce the beverage company’s carbon footprint. The eco-friendly bottle is made from raw materials such as pine bark and corn husks.

Not to be outdone, Coca-Cola has been using and selling a bottle in nine countries made out of 30 percent sugar cane from Brazil. Coke is also working on converting the remaining 70 percent to a plant-based material. The company’s goal is to convert all its plastic bottles to plant by 2020.

More importantly, Coca-Cola has created a new business stream for itself. The company entered into a licensing agreement with HJ Heinz Company earlier in 2011 whereby the ketchup maker will use the “plant bottle” for its products.

TMW Follows Appian Way

Ease of integration is a must-have when companies consider investments in new technology infrastructure today— especially given the explosion of point-specific solutions and hosted plug-and-play deployments. For the logistics technology market at large, the same premise applies to mergers and acquisitions. Buyers and sellers look for complementary pieces that can be easily integrated— whether its software, market exposure, or customer accounts.

Since 2010, when JDA Software Group finalized its acquisition of i2 Technologies, a flood of consolidation activity has hit the logistics technology marketplace. And the trend continues with Cleveland-based TMW Systems’ buyout of Appian Logistics Software.

From a macro-perspective, logistics IT movers and shakers are looking to penetrate more of the small- and medium-sized business bubble. Activity is trundling toward mid-market opportunities where solutions companies can build critical mass quickly through consolidation. With so many new vendors peddling an assortment of on-demand applications, some see consolidation as a necessary growth strategy.

TMW can now offer last-mile routing and scheduling optimization solutions for dedicated and private fleets with Appian’s Direct Route software— a complementary addition to TMW’s dispatch, fleet maintenance, and transportation business intelligence solutions.

But TMW’s real motivation was expanding its customer presence in a new industry vertical— transportation and logistics intermediaries.

It was a strategic move in that “Appian serves a complementary market that TMW does not,” says Scott Vanselous, chief marketing officer, TMW Systems. Combined, the two companies now count more than 2,000 unique customers, with about 30 users who overlap. But the majority of Appian’s clients are 3PLs and dedicated carriers.

Appian Logistics, which started operations in 1987, originally steered its vehicle routing and scheduling solutions toward private fleets. About 10 years ago, it began targeting the third-party logistics and intermediary market.

“A number of 3PLs were taking over dedicated fleet operations, using our tools to create a bid and determine optimal routes for prospective customers,” says Mike Kositzky, president of Appian Logistics. “Then they began installing our software on an operational basis.”

From TMW’s perspective, the key to this expansion is delivering solutions to that new user base— just as Appian Logistics endeavored one decade ago. Onboarding Appian Logistics’ capabilities offers an entrée to sell fleet management solutions to 3PLs, then up-sell to other private fleet users. TMW’s strategy is to grow organically through acquisition, broadening its product footprint and better integrating its solutions along the way.

Moving forward, Appian Logistics will become a line of business under TMW— TMW Appian— retaining brand equity while operating within the corporate fold. The two companies are currently in the process of creating a future roadmap of how to integrate their fleet management solutions and create new synergies and product offerings by combining their respective resources and capabilities.